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On the theory of interest rate policy

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  • Heinz-Peter Spahn

    ()
    (UniversitŠt Hohenheim, Institut fŸr Volkswirtschaftslehre, Lehrstuhl fŸr Wirtschaftspolitik, Stuttgart (Germany))

Abstract

A new consensus in the theory of monetary policy has been reached pointing to the pivotal role of interest rates that are set in accordance with central banks' reaction functions. The decisive criterion of assessing the Taylor rule, inflation and monetary targeting is not the macrotheoretic foundation of these concepts. They serve as "languages" coordinating heterogeneous beliefs among policy makers and private agents, and should also allow rule-based discretionary policies when markets are in need of leadership. Contrary to the ECB dogma, the Fed is right to have an eye on the risks of inflation and unemployment.

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Bibliographic Info

Article provided by Banca Nazionale del Lavoro in its journal Banca Nazionale del Lavoro Quarterly Review.

Volume (Year): 54 (2001)
Issue (Month): 219 ()
Pages: 355-380

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Handle: RePEc:psl:bnlqrr:2001:42

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Keywords: Interest Rates; Interest; Monetary Policy; Monetary; Policy;

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References

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  1. Miguel Leon-Ledesma & Anthony P. Thirlwall, 2000. "Is the natural rate of growth exogenous?," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 53(215), pages 433-445.
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  7. Svensson, Lars, 1999. "Monetary Policy Issues for the Eurosystem," Seminar Papers 667, Stockholm University, Institute for International Economic Studies.
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  10. Mankiw, N Gregory, 2001. "The Inexorable and Mysterious Tradeoff between Inflation and Unemployment," Economic Journal, Royal Economic Society, vol. 111(471), pages C45-61, May.
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  17. Otmar Issing, 1999. "The Eurosystem: Transparent andAccountable or 'Willem in Euroland'," Journal of Common Market Studies, Wiley Blackwell, vol. 37(3), pages 503-519, 09.
  18. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  19. Goodhart, Charles A E & Huang, Haizhou, 1998. "Time Inconsistency in a Model with Lags, Persistence, and Overlapping Wage Contracts," Oxford Economic Papers, Oxford University Press, vol. 50(3), pages 378-96, July.
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Cited by:
  1. Philip Arestis & Malcolm Sawyer, 2002. "Does The Stock of Money Have Any Causal Significance," Economics Working Paper Archive wp_363, Levy Economics Institute.
  2. Doyle, Matthew, 2006. "On the Optimality of Delay in 'Monetary Policy As a Process of Search'," Staff General Research Papers 12503, Iowa State University, Department of Economics.

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